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The annual meeting of the American Society of Clinical Oncology is the venue where the pharmaceutical industry showcases its new drugs for cancer. For the last several years, these have been highly-anticipated events where stunning progress has been reported in treating a disease against which President Nixon declared war back in 1971. And each year's crop of wonder drugs makes it look as if we are at last making decisive progress against the enemy. Indeed, it is no longer unusual to hear about therapies that provide years of survival.

Sometimes though, the results are less spectacular. One such drug that has garnered some attention, and divided opinions, is ramucirumab, developed by Eli Lilly. It was approved for gastric cancer in April, and its performance against non-small-cell lung cancer has just been reported. For both indications, it provides a 1.4-month increase in median overall survival. The cost? $6,000 per infusion, which translates into a treatment cost of $66,000* for gastric cancer, assuming median survival. If the lung cancer indication is approved and the drug similarly priced, that treatment would cost as much as $90,000*.

One can understand the excitement of oncologists for whom this is the first treatment in a decade that improves the life expectancy of lung cancer patients that have relapsed. If cost was no object, six weeks of extra life might be seen as progress. But, as Sovaldi has clearly shown, the cost does matter. If patients and insurers are up-in-arms about paying $84,000 for a hepatitis C cure, how will they react if they are asked to pay $90,000 for six additional weeks of life?

More generally, what does pricing freedom really mean in the drug industry? If the market was really free, drugs that cost $90K, and provide a short life extension, would be unlikely to succeed because their prices bear little relationship to their benefits. But this is not a free market, and these drugs experience some degree of success because of their sponsors' skillful exploitation of the third-party payment system. The real problem with drug prices is not so much that Sovaldi costs $84,000, but that so many mediocre drugs cost about the same, or more. In the case of Sovaldi, one can argue that its price is truly rewarding innovation. In the case of drugs that provide a "statistically significant" but clinically marginal improvement in survival, such prices reward mediocrity -- that is the opposite of innovation.

Pricing freedom is an essential component of a thriving innovation ecosystem. A system in which drug prices would be regulated to be normally distributed about an average deemed to be "acceptable" would guarantee mediocrity. There must be the possibility of clearly superior prices for breakthrough innovation. Unfortunately, this is not what we have today, not even in the United States, where what is often claimed in the name of free pricing is the right to take advantage of third-party payments to charge top dollar for mediocre drugs.

As one of the R&D leaders of the industry was telling me not long ago, there is only one kind of drug worth developing, and that is breakthrough drugs. Today, this is easier to do thanks to FDA's breakthrough therapy designation. The more innovative companies have been quick to take advantage of this expedited process, and, at the end of May 2014, 40 drugs and combinations had received this coveted distinction, and 6 had been approved (here and here). This is a wonderful example of FDA having a major positive impact on innovation with hardly spending a taxpayers' dime. And it begs the question of why drug companies have not yet purged their pipelines of drug candidates that do not qualify for this designation. As R&D budgets are scaled down, this would seem to be a way to soften the pain by improving the quality of what remains, and speeding it to market. Without such discipline, there is every reason to fear that patients in the future will have to satisfy themselves with far fewer Sovaldis than ramucirumabs.

*Correction

Lilly has informed me that the median number of infusions received by patients is lower than I had assumed in the computation of the treatment costs reported in this blog. For gastric cancer, patients received a median of 4 biweekly infusions, each costing $6,120, resulting in a median treatment cost of $24,480, not $66,000. For non-small-cell lung cancer, patients received a median of 4.5 infusions, administered every 3 weeks, each costing $7,140 (higher unit cost due to higher dosage), resulting in a median treatment cost of $32,130, not $90,000. I had based my calculations on the information that was available to me, and I thank Lilly for reaching out and allowing me to correct these inaccuracies. Since there are plenty of drugs that provide a marginal benefit for a very high cost, this correction does not invalidate the thesis of this blog that remains unfortunately a key challenge to the pharmaceutical industry.